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Thursday, 27 July 2017

Yesterday Advocate General (AG) Wahl issued
his Opinion in Coty Germany
GmbH v Parfümerie Akzente GmbH, C‑230/16
[the Opinion has
already received a thorough and interesting commentary by leading competition law blog
Chillin’Competition].

This is a reference for a preliminary ruling from
the Higher Regional Court, Frankfurt am
Main (Germany), seeking guidance from the Court of Justice of the European
Union (CJEU) on how to interpret relevation competition law provisions [Article 101(1)
TFEU and of Article 4(b) and (c) of Regulation
(EU) No 330/2010] in the context of selective distribution
agreements.

This case is linked to, on the one
hand, the increasing popularity of electronic marketplaces over which producers
have no influence [eg Amazon, eBay] and, on the other hand, the
question whether a
supplier may prohibit authorized resellers from making use of non-authorized
third undertakings over fear that the relevant products would otherwise lose or
risk losing their ‘luxury’ image.

Background

As readers may imagine, the latter is indeed the core
issue in the background national proceedings, brought by Coty Germany [an undertaking
that supplies luxury goods and is certainly not new to having its cases
referred to the CJEU: eg here, here, and here]
against one of its authorized distributors (Parfümerie Akzente), which has been selling Coty’s
products for years both at (Coty-approved) brick-and-mortar locations and online
(through amazon.de). When Coty sought to extend the control that it has over
physical retail to the online sphere, Parfümerie
Akzente refused.

As a result, litigation
ensued.

In
2014 the first instance court sided with Parfümerie Akzente, and held that the
objective of preserving a prestige brand image does not justify the
introduction of a selective distribution system which by definition restricts
competition.

The
decision was appealed to the Higher Regional Court, which was unsure whether
the one at first instance was a correct application of CJEU case law, notably the 2011 judgment inPierre
Fabre Dermo-Cosmétique. The
court thus decided to stay the proceedings and refer the case to the CJEU.

AG Wahl

The AG
Opinion

AG Wahl noted at the outset that the decision in Pierre
Fabre Dermo-Cosmétique has been subject to divergent interpretations by national competition authorities and courts: this case is therefore an opportunity
for the CJEU to clarify the meaning and scope of its earlier jurisprudence.

According to the AG, the interpretation given at
first instance in the background national proceedings is not the correct one:
the seller of luxury products is not prevented at the outset from requiring its
authorized retailers to sell products at certain conditions and locations
– whether offline (brick-and-mortar shops) or online.

This is because price competition is not the only
form of effective competition [para 33], and – indeed – “it is on the basis of
that premise that selective distribution systems [based on qualitative criteria] should
be seen” [para
34].

The CJEU has recognized the legality of selective distribution systems based on qualitative yet objective criteria
(determined uniformly and applied in a non-discriminatory fashion – including
preserving a certain product image) since the seminal decision in Metro.

The AG also recalled that it has been gradually
accepted that selective distribution systems of this kind may even have
positive effects on competition: by favouring and protecting the development of
the brand image,

“[t]hey
constitute a factor that stimulates competition between suppliers of branded
goods, namely inter-brand competition, in that they allow manufacturers to
organise efficiently the distribution of their goods and satisfy consumers.” [para 42; on
intra-brand competition, see para 44].

Furthermore,

“Selective
distribution systems are, especially for goods with distinctive qualities, a
vector for market penetration. Brands, and in particular luxury brands, derive
their added value from a stable consumer perception of their high quality and
their exclusivity in their presentation and their marketing. However, that
stability cannot be guaranteed when it is not the same undertaking that
distributes the goods. The rationale of selective distribution systems is that
they allow the distribution of certain goods to be extended, in particular to
areas geographically remote from the areas in which they are produced, while
maintaining that stability by the selection of undertakings authorised to
distribute the contract goods.” [para 43]

Eau de Toilette ... for Kats

While
in principle selective distribution agreements are not contrary to Article 101
TFEU, there are some conditions [the Metro
criteria] that sellers must respect [paras 52 ,65-66]:

1.It must be established that the
properties of the product necessitate a selective distribution system, in the
sense that such a system constitutes a legitimate requirement, having regard to
the nature of the products concerned, and in particular their high quality or
highly technical nature, in order to preserve their quality and to ensure that
they are correctly used.

2.Resellers must be chosen on the basis
of objective criteria of a qualitative nature which are determined uniformly
for all potential resellers and applied in a non-discriminatory manner.

3.The criteria defined must not go beyond
what is necessary.

The
AG then focused on the particular case of luxury goods, and recalled [para 72]
that:

“In
the context of trade mark law, the Court [notably in Diorand Coty
Prestige] has emphasised that luxury and prestige goods are
defined not only by reference to their material characteristics, but also on
the basis of the specific perception which consumers have of them, and more
particularly of the ‘aura of luxury’ which they enjoy with consumers. As
prestige goods are high-end goods, the sensation of luxury emanating from them
is essential in that it enables consumers to distinguish them from similar
goods. Therefore, an impairment of that aura of luxury is likely to affect the
actual quality of those goods. In that regard, the Court has already held that
the characteristics and conditions of a selective distribution system can, in
themselves, preserve the quality and ensure the proper use of such goods.”

Comment

The
Opinion of AG Wahl appears both correct and sensible, including from an IP
perspective [but
see here
for a critical take].

Readers
will remember in particular that in Dior
the CJEU linked the grant of a licence in the context of a distribution agreement concerning luxury
products (in that case, "corsetry goods") to the exercise of Dior’s trade mark rights, notably the right to put
relevant goods into circulation for the first time. In Coty Prestige the CJEU
noted that the exclusive nature of trade mark rights means that any unauthorized
use of a trade mark may amount to an infringement [see paras 89-90 of the Opinion].

2 comments:

The questions do not relate to IP instruments, but the legality of selective distribution agreements has a clear relevance to trade mark law, holders of trade mark rights, and current/perspective licensees.

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